What I would like to do is install an external 2TB hard drive to my AppleTV2, through a bunch of media on it, and then use it to both watch on the ATV2 and ATV1 that the external hard drive is connected to. It would be on a wired gigabit network.
If this won’t work, should I go with a NAS?
Yes, you can enable ‘File Sharing’ on your ATV1 (via Maintenance --> Settings menu) and then use SMB to stream from the ATV1 to ATV2.
Before enabling File Sharing you will want to run the Smart Installer (http://support.firecore.com/entries/247181-post-install-checklist) and then install the File Sharing item through the Maintenance --> Install Extras menu.
Thanks for the quick reply. Any limit to the size of the external hard drive?
Currently supported are external USB drives up to 2TB in size, formatted in Mac OS or FAT32 format.
Does the AppleTV2 need to be jailbroken and have aTV Flash installed on it for this to work? Or can I simply stream from my AppleTV1 (aTV Flash Installed) to a stock AppleTV2?
Yes, to enable this feature aTV Flash will need to be running on the original Apple TV, as well as aTV Flash (black) on the new Apple TV.
As I mainly use XBMC on my aTV1 is this functionality still possible being streamed through XBMC on the aTV2?
This can be used with or without XBMC installed. You just need to have aTV Flash installed on the ATV1 to enable the File Sharing feature.